Matching concept is based on the accounting period concept. The expenditures of a firm for a particular accounting period are to be matched with the revenue of the same accounting period to ascertain accurate profit or loss of the firm for the same period. This practice of matching is widely accepted all over the world. Let us take an example to understand the Matching Concept clearly.
The following data is received from M/s Globe Enterprises during the period 01-04-2012 to 31-03-2013:
|
S.No. |
Particulars |
Amount |
|
1 |
Sale of 1,000 Electric Bulbs @ Rs 10 per bulb on cash basis. |
10,000.00 |
|
2 |
Sale of 200 Electric Bulb @ Rs. 10 per bulb on credit to M/s Atul Traders. |
2,000.00 |
|
3 |
Sale of 450 Tube light @ Rs.100 per piece on Cash basis. |
45,000.00 |
|
4 |
Purchases made from XZY Ltd. |
40,000.00 |
|
5 |
Cash paid to M/s XYZ Ltd. |
38,000.00 |
|
6 |
Freight Charges paid on purchases |
1,500.00 |
|
7 |
Electricity Expenses of shop paid |
5,000.00 |
|
8 |
Bill for March-13 for Electricity still outstanding to be paid next year. |
1,000.00 |
Based on the above data, the profit or loss of the firm is calculated as follows:
|
Particulars |
Amount |
Total |
|
Sale |
|
|
|
Bulb |
12,000.00 |
|
|
Tube |
45,000.00 |
57,000.00 |
|
Less - |
|
|
|
Purchases |
40,000.00 |
|
|
Freight Charges |
5,000.00 |
|
|
Electricity Expenses |
1,500.00 |
|
|
Outstanding Expenses |
1,000.00 |
47,500.00 |
|
Net Profit |
|
9,500.00 |
In the above example, to match expenditures and revenues during the same accounting period, we added the credit purchase as well as the outstanding expenses of this accounting year to ascertain the correct profit for the accounting period 01-04-2012 to 31-03-2013.
It means the collection of cash and payment in cash is ignored while calculating the profit or loss of the year.